The long-term goal of this study is to understand the function of protein modification by the ubiquitin like protein ISG15 in hematopoiesis. Hematopoiesis is a complex process of cell proliferation and differentiation. Regulation of hematopoiesis occurs at multiple levels including transcriptional regulation, signal transduction, and protein modification. We cloned a novel member of the deubiquitinating enzyme family, termed ubp43. Further studies have demonstrated that ubp43 is a protease that specifically removes the ubiquitin like protein ISG15 from protein conjugates. Like phosphorylation, ISG15ylation is a mechanism of protein modification. However, in contrast to phosphorylation only a limited understanding exists of the mechanisms and consequences of ISG15ylation. Type I interferon (IFNa/b) and LPS strongly upregulate both ubp43 expression and protein ISG15ylation. We have generated ubp43 knockout mice. Ubp43 deficient mice have shown fundamental defects in hematopoietic response to interferon and LPS treatment. Furthermore, ubp43 deficient cells have significantly enhanced type I interferon signaling and Statl is an ISG15ylated protein. This proposal tests the hypothesis that ubp43 is crucial for hematopoiesis under stress conditions, such as viral and bacterial infections, by regulating the ISG15ylation of important regulators of the JAK-STAT signaling pathway. The studies proposed in Specific Aim #1 will analyze the molecular mechanism of protein ISG15ylation using Statl as a model. The studies proposed in Specific Aim #2 will investigate the function of JAK-STAT signaling and Statl ISG15ylation in ubp43 function. The studies proposed in Specific Aim #3 will investigate the role of ubp43 in type I interferon signaling by identifying additional important JAK-STAT pathway regulators affected by protein ISG15ylation. The experiments proposed will address fundamental questions about protein ISG15ylation in hematopoiesis and interferon signaling.